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Resale vs Newly Built – A Guide to Buying Your Next Home

When the time comes to buy a home, you'll be faced with a number of critical decisions. Chief among these is the choice between buying a newly built home or purchasing an existing property.

On the face of it, it may seem like a simple decision. Newly built homes are – well – new, and that delivers some definite advantages to the home owner. You can choose the floor plan you prefer, and start out life in your new home with up to date amenities and state of the art appliances. On the other hand, you may be limited as to where and when you can build your new home, and you may find that the costs of new construction outweigh some of the obvious lifestyle advantages.

Existing properties offer a bit more flexibility for the buyer, both in cost and location, but they too have their own disadvantages to consider. Financing can sometimes be difficult to secure, and there is frankly more competition for the choicest real estate.

All in all, there's much to consider when choosing between a newly built home and a resale property, and it is important to look at all of the variables before making any final decisions. If you're in the market for a new home, the following key points of comparison should help you decide which option best suits your situation, and will hopefully help guide you to the home of your dreams.

Cost Considerations

One of the major concerns that all home buyers have is ‘cost', and there is a sizable gap between the price of a newly constructed home and that of a resale property. Currently, the average cost of a newly built home is roughly $300,000 (not including acreage). That's assuming you are sticking with the basic model and not opting for any expensive upgrades, in which case the cost can rise significantly. It's also worth noting that new construction remains at an all time low, making competition for newly built homes rather fierce. This can also have an impact on the cost of new construction, particularly in areas where new builds do not keep up with local demand.

On the other hand, the average sale price of an existing home is approximately $278,000 (as of the latest US census), roughly $60,000 less than the cost of new construction. Depending on the terms of your mortgage that can add up to significant savings over the life of your home loan. Moreover, there is a greater opportunity for negotiations when purchasing an existing property, which can often result an even lower sticker price (an option that is rarely available with new construction). If you buy something that is move-in ready, then you may have further savings from not juggling multiple payments in parallel while you move.

Repairs and Renovations

Of course there's more to the cost of a home than the sticker price, and it is important to consider the need for any repairs or renovations to the property you are buying. New homes are unlikely to need any significant repairs for at least 7 years, and in most cases those should be covered under warranty. The opportunity to customize your home during the building process (changing the floor plan, adding in closet space, or upgrading to state-of-the art appliances) also eliminates the need for any major renovations.

Older homes, on the other hand, may need some repairs or renovations that will ultimately increase the total cost of the purchase. Ideally, these should be minimal, and buyers should be able to address them as time and finances allow. Depending on the age of the home, most experts agree that you should have the property inspected beforehand, and that you allow for the cost of future repairs and renovations when considering the total cost of the purchase. That being said, older homes often have a unique architectural charm that you rarely find in newly built houses, and that can sometimes offset the cost of any future repairs or renovations.

Additional Costs of Ownership

In addition to the price of purchase, there is also the costs of ownership to be considered. New homes are typically more energy efficient than older houses, having been built with newer building materials, better insulation, and state-of-the-art tech. Consequently, energy costs should be lower than with a resale property. Older homes tend to be less energy efficient, and that can lead to higher monthly expenditures for the new owners. On an old home, you never know when the hot water heater will need replaced, or if the 50+ year old pipes under the house will get clogged and cause the plunged toilet water to start coming back up through the bathtub! For buyers considering condos or townhomes, monthly HOA fees often increase significantly after the building has been in place for 5 to 10 years, as leaks and other repairs increase the cost of maintenance.

There is also the question of insurance, and that can have a definite impact on the cost of ownership. Homeowner's insurance on a newer home should be less expensive than with an older property, largely because the building will be new and up to current standards. Insurance on older homes is typically more expensive, and depending on the location and condition of the property may be more difficult to secure.

Finally, there is the matter of property taxes. Because older homes are typically less expensive, they fall into a different tax base than newer homes. In most cases (but not all) that means that an older home will come with a lower tax burden for the owner. While this shouldn't be a deciding point when choosing between a newly constructed home or a resale property, it is an important consideration. It can be helpful to look at not only the current rate in an area, but to compare how the rate has changed over time & if there are other major municipal projects which are likely to shift the property tax rates in the near future.

Ease of Purchase

One further financial consideration when buying a home is how easy it will be to qualify for a mortgage. Following the financial crisis of 2008, most lenders imposed heightened restrictions on their lending practices, and it has become more difficult for buyers to get approved for new home loans. That being said, banks and credit unions are once again beginning to loosen their purse strings, although they are being a bit more circumspect when it comes to underwriting new mortgages. Whether buying a new home or a resale property, buyers should expect to jump through a few hoops before qualifying for a mortgage. As always, a strong credit score and sizable down payment is the best way to secure a home loan from a traditional lender at the most favorable terms for the borrower.

The following table shows currently available rates in your local area.

It's worth noting here that it is often easier to purchase a newly constructed home through the builder's own financing department. After all, it is in their best interest to place families in homes, so they are much more likely to approve a mortgage than a more traditional lender. However, that doesn't necessarily mean that buyers are getting the best deal possible, and you may pay a premium for the ease with which you qualify for the purchase of a newly constructed home should you obtain your mortgage via builder financing.

Location, Location, Location

So far we have talked exclusively about the financial considerations of purchasing either a new or existing property, but there is more to think about when buying a new home than simply the cost. There is also the question of lifestyle, and how your choice of home (and its location) affects your quality of life. While a newly built home may offer state-of-the-art amenities, you may be forced to make some concessions in order to enjoy those luxuries. For example, a new home is likely to be built in a developing community, meaning that you will be living with ongoing construction in the neighborhood for some time to come. It's also more likely that a newly built home will be in an underdeveloped community, with limited access to schools, shopping centers, and places of worship. Moreover, new housing developments tend to be fairly far removed from major city centers, meaning your work commute may be substantially greater than you might like. Long commutes have a major negative impact on happiness.

In comparison, resale homes tend to be in established communities with easy access to work, schools and shopping. With an existing property you also have more control over your choice of neighborhoods. You can buy into a part of the city that you know, and that offers the lifestyle and social opportunities that you want for you and your family. That greater flexibility allows you to target homes in more favorable school districts, or with closer proximity to work, worship, shopping and entertainment. Older homes also tend to be in neighborhoods with an established character, in direct contrast to new housing developments which tend to have a cookie-cutter quality to them.

Finally, location has a direct impact on property values. With an older home in an established community you can review the history of the property's value, tracking its rise and fall and determining if it is a wise investment. New builds are dependent on future construction, and the influx of new buyers, to establish property values, and that can be an unknown quantity.

In Summary – Reviewing the Pros and Cons

There is much to consider when deciding on the purchase of a newly built home or a resale property, and no two buyers will arrive at the same conclusion when reviewing all of the pros and cons. For some people, new construction fits their needs perfectly and will be the logical choice. For others, an existing home will tick all of the boxes and will be the right decision for their financial and lifestyle goals. But whatever the final decision, it is important to fully consider the advantages, as well as the disadvantages, of buying either a new or resale home. The following checklist covers all of the major points of comparison, and should hopefully help you find the new home that is right for you and your family.

Newly Built Homes

Pros

Brand new construction with active warranties

Customizable floor plans

Cost of upgraded features and appliances can be folded into the mortgage

Green appliances for better energy efficiency

Financing available through the builder, making it easier to qualify for a mortgage

Fewer maintenance costs associated with repairs or renovations

Cons

More expensive than resale properties

Location may not be ideal (lack of schools and shopping opportunities, possible longer commute)

Property values are unknown, and possibly more volatile

Lacking in character – cookie cutter design

Ongoing construction in the neighborhood

Greater Tax Burden

Existing Homes

Pros

Typically less expensive, with more opportunity to negotiate price

More desirable locations

Known neighborhood dynamics

Proximity to schools, shopping, and places of worship

Older houses tend to have more character as compared to modern designs

Property values can be determined before purchase

Lower tax profile

Cons

Smaller inventory of acceptable properties

May require extensive repairs and/or renovations

Fewer amenities/older appliances

Financing can be more difficult

Competition from competing buyers

Neighborhood may be in decline

Buying any property is a major financial commitment, but it is also an investment in your family's future. Remember, when all is said and done you should not only be comfortable with the purchase price, but also with the way in which your new home will support and enhance your family's lifestyle. Take the time to consider all of the aspects of your purchase, and carefully weigh the pros and cons of both new and pre-owned properties. At the end of the day, you are buying much more than simply a house – you are buying a home.